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MORGAN            STANLEY              RESEARCH                                                                           ...
MORGAN        STANLEY      RESEARCH                                                             January 30, 2008          ...
MORGAN              STANLEY                 RESEARCH                                                                      ...
MORGAN        STANLEY       RESEARCH                                                                                      ...
MORGAN        STANLEY       RESEARCH                                                                    January 30, 2008  ...
MORGAN            STANLEY              RESEARCH                                                                           ...
MORGAN        STANLEY        RESEARCH                                                                  January 30, 2008   ...
MORGAN        STANLEY      RESEARCH                                                                  January 30, 2008     ...
MORGAN        STANLEY   RESEARCH                                                           January 30, 2008               ...
MORGAN                   STANLEY                          RESEARCH                                                        ...
MORGAN                   STANLEY   RESEARCH                                                                               ...
MORGAN               STANLEY                   RESEARCH                                                                   ...
MORGAN         STANLEY          RESEARCH                                                                         January 3...
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
02 yhoo-ms-1.30.08
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Transcript of "02 yhoo-ms-1.30.08"

  1. 1. MORGAN STANLEY RESEARCH NORTH AMERICA Morgan Stanley & Co. Incorporated Mary Meeker Mary.Meeker@morganstanley.com +1 (1)212 761 8042 David A Joseph David.Joseph@morganstanley.com +1 (1)212 761 3365 January 30, 2008 Anant A Thaker Anant.Thaker@morganstanley.com +1 (1)212 761 7038Stock Rating Yahoo!Overweight-VIndustry View CQ4: More PatienceAttractive Required Key Ratios and Statistics Reuters: YHOO.O Bloomberg: YHOO US Internet & Consumer Software / United States of America In line to better CQ4 - Yahoo! reported a solid CQ4 Shr price, close (Jan 29, 2008) $20.81 (+21% Y/Y revenue growth in core Owned & Operated Mkt cap, curr (mm) $30,017 sites, 73% of net revenue) and retained a relatively 52-Week Range $34.08-18.72 upbeat outlook for its core business – implying 14% Y/Y revenue growth in C2008E (our prior estimate, an acceleration from 12% in C2007), when adjusting for re-negotiated broadband deals and the sale of Overture Japan. Yahoo! also indicated, in effect, it needed to invest a net $100MM+ more than anticipated in opex (on a base of $5.7B in C2008E revenue) to: 1) improve methods for buying ad inventory + improve monetization; 2) improve user experience of consumer ‘starting points’ – home page, search, mail, My!, mobile + verticals like sports / finance / news; and 3) adapt to changes related to social networking / widgets / componentization / mobile / video. It all sounds good, but shares were down 10% in after-market trading. New news related to non-core operations leads to reduction in C2008E estimates – The problem is credibility. While Yahoo!’s EBITDA trajectory has told a solid story in recent years, the trajectory of operating income (incl. stock-comp.) has been poor: $1.1B in C2005; $941MM in C2006; $695MM in C2007 and $605MM in C2008E. Shareholder disappointment has been significant. On its Tuesday earnings call, in addition to the opex surprise (which we support, btw), the company indicated it had: 1) renegotiated its high-margin broadband deals (with AT&T and Rogers) Morgan Stanley does and seeks to do business with and its C2008E revenue would be reduced by companies covered in Morgan Stanley Research. As $150-200MM (we assume $160MM+), which, in effect, a result, investors should be aware that the firm may falls to the bottom line, and 2) the change in its Overture have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors Japan relationship would lead to a reduction in quarterly should consider Morgan Stanley Research as only a C2008E revenue of ~$120MM. All-in, instead of 14% single factor in making their investment decision. revenue growth in C2008E, we get 11% at the midpoint Customers of Morgan Stanley in the U.S. can receive of guidance and a net ~$250MM reduction in operating independent, third-party research on companies income (incl. stock comp.), or 29% lower than our latest covered in Morgan Stanley Research, at no cost to them, where such research is available. Customers published estimate. can access this independent research at www.morganstanley.com/equityresearch or can call (continued on next page) 1-800-624-2063 to request a copy of this research. For analyst certification and other important disclosures, refer to the Disclosure Section. 125
  2. 2. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Strong core business trends, messaging needs to Retain Overweight-V rating owing to a bet on: 1)improve – We like the financial trends we see in Yahoo!’s improving financials or 2) catalysts for change –core business and from what we can glean from Considering Yahoo!’s holdings in Yahoo! Japan, Alibaba,management comments, in spite of competition, traffic GMarket are worth $10B (or ~$7 per share, assuming atrends (thanks in part to improved programming and 25% liquidity discount), net cash is $1.6B (~$1 per share),product focus) are sound with growth of ~20% Y/Y in CQ4. Yahoo! proper is trading at ~9x C2008E and ~8x C2009ETo date, the company, on a net basis, hasn’t seen negative EBITDA (as of Tuesday’s closing price of $20.81). Werepercussions from a weakening economy. But the assume revenue and EBITDA growth accelerates incompany’s messaging and related Street ‘surprises’ 2009E, as we believe core strategy is sound and currentrelated to AT&T, Rogers, Overture Japan and incremental core business trends seem to support thesis. In marketsopex only add frustration on frustration related to poor like the one we are in now, where – for better or worse –stock performance. Based on after-market trading, the investors have a ready / fire / aim attitude and patience canfrustration tom-toms may be getting louder. be hard to find, stocks (and companies) get too cheap to resist. Yahoo!’s ability to remain independent may be a function of its ability to deliver compelling financial results (combined with a positive outlook and improved communication) in CH1:08CQ4: More Patience RequiredYahoo! CQ4 HighlightsWhat We Liked:1. Excluding new broadband deals / Overture Japan, revenue (ex-TAC) expected to grow in mid-to-high teens in C2008E2. Acceleration in search monetization3. Ad network platform gaining traction4. Improved focus on organization / strategy5. Evolving Broadband RelationshipsWhat We Didn’t Like:1. In-line top line, better on the bottom2. Weaker-than-expected guidance3. C2008: a year of investment4. Transition in display may increase exposure in potential recessionary environment5. Financial metrics deterioratingWhat the Model Says:1. Lowering CQ1E and C2008E2. Continued strength in core business in C2008E3. Lowering C2009E but still showing acceleration 2 126
  3. 3. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit 1Yahoo! – CQ4:07E vs. CQ4:07A Snapshot(US$ in Thousands, Except per Share Data) Estimated vs. Actual 12/07E 12/07A CommentsNet Revenue (Ex-TAC) (1) $1,415,445 $1,403,129 Slightly below our estimate, below of consensus estimate of $1,416MM Marketing Services (Ex-TAC) (2) 1,177,143 1,161,118 +14% Y/Y, +10% Q/Q; note O&O revenue grew 21% Y/Y to 73% of net revenue Fees (2) 238,302 242,011 +14% Y/Y, +8% Q/Q Company Revenue Guidance ($MM) $1,310-1,450Cost of Revenue 274,596 269,331Gross Profit (incl. Depreciation) $1,140,849 $1,133,798 Below our estimate Company Gross Profit Guidance ($MM) $1,055-1,165Product Development 240,626 235,117Sales & Marketing 372,262 367,831General & Administrative 155,699 156,698Stock Compensation Expense 174,648 158,102Amortization of Intangibles 29,985 24,813Total Operating Expenses (incl. Stock Comp.) $973,220 $ $942,561 $Total Operating Expenses (excl. Stock Comp.) $798,572 $784,459Operating Income (incl. Stock Comp.) $167,629 $ $191,237 $ Above our estimate on opex controlOperating Income (excl. Stock Comp.) 342,277 $ 349,339 $EBITDA (excl. Stock Compensation) 517,818 527,062 Above our estimate Company EBITDA Guidance ($MM) $480-550Net Interest (Income) and Other (Income) (65,636) (96,964)Pre-Tax Profit $233,265 $288,201Provision / (Benefit) for Income Taxes 81,643 115,818 Effective tax rate of 43% vs. our 35% estimateAdjustment for Extraordinary Items 0 6,842(Benefit) for NOL Carryforwards 0 0Minority Interest 0 3,958Operating Net Income $151,622 $161,583 Above our estimateAmortization of Goodwill (3) 0 0Acquisition-Related Charges 0 0Cumulative Effect of Accounting Change 0 0Restructuring Charges 0 0Extraordinary (Gain) / Loss 0 (6,842) Due to increased ownership dilution in AlibabaGoodwill Amortization of Yahoo! Japan 0 0Amortization of Purchased Technology 0 0One-Time (Revenue) 0 0Tax Effect 0 (37,298) Related to tax adjustmentsReported Net Income $151,622 $205,723 Above our estimate in part due to tax adjustmentWtd. Avg. Shares Out (Diluted) 1,396,070 1,394,656 Slightly below our estimateOperating EPS (ex. Stock Comp.) $0.19 $0.20Reported EPS $0.11 $0.15 $0.04 above our / consensus estimateKey MetricsGrowth RateRevenue (Ex-TAC) (Y/Y) 15% 14% Below our estimate and in-line with CQ3 of 14% after an acceleration from 11% / 9% in CQ2 / CQ1 Marketing Services (Ex-TAC) (Y/Y) 16 14 Fees (Y/Y) 12 14Revenue (Ex-TAC) (Q/Q) 10 9 ~1ppt below our estimateCost of Revenue (Y/Y) 28 25Cost of Revenue (Q/Q) 9 7Expenses (Y/Y) 38 34Expenses (Q/Q) 11 7Operating Income incl. Stock Compensation (Y/Y) (46) (38)Operating Income incl. Stock Compensation (Q/Q) 12 27Operating Income excl. Stock Compensation (Y/Y) (15) (13)Operating Income excl. Stock Compensation (Q/Q) 16 18EBITDA (Y/Y) (4) (2)EBITDA (Q/Q) 11 13Net Income (Y/Y) (37) (33)Net Income (Q/Q) 0 7Margin AnalysisGross Margin 81% 81% In-line with our estimate; down ~2ppts Y/Y, up ~1ppt Q/QOperating Margin (incl. Stock Comp.) 12 14Operating Margin (excl. Stock Comp.) 24 25EBITDA Margin 37 38 Above our estimate; down ~6ppts Y/Y, up ~1ppt Q/QPre-Tax Margin 16 21Operating Net Margin 11 12Expense Analysis (as % of Revenue)Product Development 17% 17%Sales & Marketing 26 26General & Administrative 11 11Effective Tax Rate 35 43 Above our estimateRevenue Mix (as % of Revenue)Marketing Services (Ex-TAC) 83% 83%Fees 17 17Footnotes(1) Financials include HotJobs beginning CQ1:02, Inktomi beginning CQ1:03, Overture beginning CQ4:03, and Kelkoo beginning CQ2:04.(2) Revenue breakouts are Morgan Stanley estimates.(3) Estimated from historical trends and balance sheet.Source: Morgan Stanley Internet Research. 3 127
  4. 4. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit 2 3. Ad network platform gaining traction – In CQ4,Yahoo!Yahoo! – CQ4:07 at a Glance integrated the majority of the non-premium inventory into (US$ in Millions, Except per Share Data) the Right Media exchange + closed / integrated the CQ4:07A CQ4:07E CQ4:06A acquisition of Blue Lithium. Overall inventory sold well, Revenue ex-TAC $1,403 $1,415 $1,228 with Yahoo!’s large advertisers increasing their market Y/Y Growth 14% 15% 15% spend on the network. Display revenue grew ~20% Y/Y, Q/Q Growth 9 10 9 with CPMs for non-guaranteed inventory now almost EBITDA $527 $518 $540 triple what they were in early C2006, while CPMs for EBITDA Margin 38% 37% 44% guaranteed increased modestly – all in, the gap between Reported EPS (1) $0.15 $0.11 $0.19(1) Includes stock-based compensation expense. these two price points has narrowed since early C2006E = Morgan Stanley Research Estimates. from 10x to <3x. Initial indicators of the success of RightTAC = Traffic Acquisition Costs. Media are positive and bode well for Yahoo!’s success inExhibit 3 C2008E. Going forward, Yahoo! will continue to focus onRevised Morgan Stanley Estimates for Yahoo! building a large-scale premium display ad network and(US$ in Millions, Except per Share Data) improve search monetization with the goal to increase the CQ1:08E C2008E percentage of total online advertising demand thatRevenue (Ex-TAC) $1,328 $5,686 Yahoo! “touches” to 20% of available market over theEBITDA 435 1,886 next several years from an estimated 15% in C2007E.Reported EPS (1) $0.28 $0.56Previous Revenue (Ex-TAC) $1,360 $5,851 4. Improved focus on organization / strategy – On theEBITDA 528 2,244 call, Yahoo! management outlined their strategy toPrevious Reported EPS (1) $0.13 $0.55 streamline operations with increased focus on core(1) Includes stock-based compensation expense; Excluding extraordinary items, CQ1:08E /C2008E reported EPS would be ~$0.07 / ~$0.34 properties (Home page / Search / Mail / My Yahoo! /Source: Morgan Stanley Research estimates. TAC = Traffic Acquisition Costs. Mobile + anchors such as Sports / Finance / News) + deemphasizing non-core properties (Photos / 360 / BrandCQ4:07 HIGHLIGHTS Universe / Premium Music / Podcasts / Directory / Voice, etc). In addition, Yahoo! expanded the managementWhat We Liked: team with the appointment of Ari Balogh as the CTO. Ari helped build a highly scalable / reliable infrastructure at1. Excluding new broadband deals / Overture Japan, VeriSign’s Registry that could handle billions of DNS revenue (ex-TAC) expected to grow in mid-to-high queries per second. This is a positive for Yahoo! as it teens in C2008E – For C2008E, Yahoo! guided to prepares for an increase in traffic / need for scalable revenue (ex-TAC) of $5,350-5,950MM (+11% Y/Y at systems that are likely to arise from initiatives like midpoint) despite losing revenue of $150-200MM from opening up the Yahoo! platform. AT&T broadband partnership + ‘modest’ impact from sale of Overture Japan. Excluding the effects of broadband We note that Yahoo! plans a workforce realignment of partnership renewal + Overture Japan transaction, ~1K employees in mid-February. revenue growth is expected to accelerate to mid-to-high teens in C2008E from 12% Y/Y in C2007. Underlying this 5. Evolving Broadband Relationships – In a strategic growth may be strength in search (+29% in C2008E) and shift, Yahoo! has restructured its partnerships with display advertising (+18%). broadband providers AT&T and Rogers from fee-based relationships to revenue-sharing agreements. Yahoo! will2. Acceleration in search monetization – Gains from become a partner in search + display for their portal Panama in CQ2 + CQ3 continued into CQ4, as revenue platforms. Yahoo! will receive an upfront payment of per search (RPS) for US Owned & Operated (O&O) sites $300-400MM from AT&T + $52MM from Rogers to be grew +20% Y/Y (consistent with CQ2 + CQ3), driving US recognized over the terms of their contracts. While the O&O search revenue growth of 30%+ Y/Y. International near-term economics of the new agreements will impact O&O also saw RPS accelerate into the high teens. C2008E revenue, Yahoo! expects the overall economics of these agreements to be positive over time. If 4 128
  5. 5. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo! successful, these partnerships can scale well + provide a page, My Yahoo!!, mail, search ,and mobile); and 3) catalyst for Yahoo!’s growth in the long-term. creating a platform that allows Yahoo! services to become more scalable / flexible while opening them up toWhat We Didn’t Like: third parties.1. In-line top line, better on the bottom – For CQ4, CFO Blake termed the investments Yahoo!’s “big bets,” Yahoo! reported net revenue (ex-TAC) of $1,403MM though he noted that the company is “not able to give (+14% Y/Y; +10% Y/Y ex. acquisition / FX), below our / anyone an idea of what the exact investments are, but I consensus CQ4E of $1,415MM (+15% Y/Y) / $1,416MM think you can assume that it’s hundreds of millions of and vs. +14% / +15% Y/Y growth in CQ3 / CQ4:06. We dollars.” While we are encouraged to see management estimate Yahoo!’s core business of Owned & Operated focused on targeted investments aimed at boosting (O&O) sites had revenue (ex-TAC) of $1,021MM (+21% growth, we would have liked more clarity / details on their Y/Y to 73% of net revenue, roughly in line with our size + scope + ROI timeframe. As such, we now expect estimate) while we estimate Affiliate sites revenue incremental EBITDA margin of -9% / -7% in CQ3:08E / (ex-TAC) of $140MM (-18% Y/Y to 10% of net revenue, CQ4:08E. vs. our estimate of -8%). Fees revenue of $242MM (+14% Y/Y) was above our estimate of +12%. 4. Transition in display may increase exposure in potential recessionary environment – On the call, Sue Although EBITDA of $527MM was above our estimate of Decker highlighted building a scalable monetization $518MM (yielding 38% margin vs. our CQ4E of 37%), we platform across display advertising + ultimately note that incremental EBITDA margin of -8% was a integrating with Yahoo!’s search platform as the continued deterioration from -5% / 14% / 26% in CQ3 / company’s “highest priority area of investment.” Jerry CQ2 / CQ1. Reported EPS of $0.15 was above our / noted that the company expects to launch portions of this consensus estimate of $0.11, owing to equity strategy in CH2:08, with the goal of accelerating overall investments (non-cash gain from increased ownership advertising revenue growth by the end of C2008. dilution in Alibaba) + tax adjustments. In CQ4, display revenue was +20% Y/Y (“broadly2. Weaker-than-expected guidance – For C2008E, consistent” with CQ3 and > CH1:07), with strong ad Yahoo! guided to revenue (ex-TAC) of $5,350-5,950MM impression growth, continued shift from guaranteed (+5-16% Y/Y), vs. our prior / consensus C2008E of placement to non-guaranteed buys, and $5,851MM / $5,874MM + EBITDA of $1,725-1,975MM across-the-board Y/Y increases in US CPMs. In addition, (-10% to +2%) vs. our prior C2008E of $2,244MM. Sue noted that Yahoo! may have gained market share in CQ3. Yet, after what Sue described was a “year of For CQ1:08E, Yahoo! guided to revenue ex-TAC of transition” in Yahoo!’s display business, the company $1,280-1,380MM (+8-17% Y/Y) vs. our prior / consensus expects aggressive investment in display as its top CQ1:08E of $1,360MM / $1,376MM + EBITDA of priority in C2008. We point out that the potential risk of $400-450MM (-13% to -2% Y/Y) vs. our prior CQ1:08E of recession in C2008 could affect spending in key $528MM. We again note, however, that excluding the categories, such as housing, financial, travel, and retail, effects of broadband partnership + Overture Japan where management indicated they saw some pressure in transaction, revenue growth is expected to accelerate to CQ4. mid-to-high teens in C2008E (from 12% Y/Y in C2007). 5. Financial metrics deteriorating – We point out3. C2008: a year of investment – On the call, CEO Jerry weakness in key metrics in CQ4: Yang stressed that Yahoo! will be “taking an aggressive x Incremental EBITDA margin of -8% was a continued investment posture prioritizing and allocating resources deterioration from -5% / 14% / 26% in CQ3 / CQ2 / towards our key growth drivers” in C2008. Yahoo!’s three CQ1. Similarly, incremental operating margin (ex. investment priorities will be: 1) continuing to build / stock comp.) was -31% vs. -11 % / -13% / -1% in differentiate its display advertising platform; 2) improving CQ3 / CQ2 / CQ1. the experience of key consumer starting points (e.g. front 5 129
  6. 6. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo! Exhibit 5 x Annualized revenue per average headcount of $402 was -9% Y/Y, vs. -6% / -6% / -6% in CQ3 / CQ2 / Revised Morgan Stanley Estimates for Yahoo! CQ1, while annualized opex per average headcount (US$ in Millions, Except per Share Data) of $270 was +7% Y/Y, vs. +4% / +1% / -4% Y/Y in CQ1:08E C2008E CQ3 / CQ2 / CQ1. Revenue (Ex-TAC) $1,328 $5,686 EBITDA 435 1,886 x Fee paying relationships of 19MM, +17% Y/Y vs. Reported EPS (1) $0.28 $0.56 +21% / +18% / + 24% in CQ3 / CQ2 / CQ1. Previous Revenue (Ex-TAC) $1,360 $5,851 EBITDA 528 2,244What the Model Says: Previous Reported EPS (1) $0.13 $0.55 (1) Includes stock-based compensation expense; Excluding extraordinary items, CQ1:08E /1. Lowering CQ1E and C2008E – We now expect C2008E reported EPS would be ~$0.07 / ~$0.34 CQ1:08E revenue (ex-TAC) / EBITDA / reported EPS of Source: Morgan Stanley Research estimates. TAC = Traffic Acquisition Costs. $1,328MM (+12% Y/Y) / $435MM (-5% Y/Y; 33% margin) / $0.28, vs. $1,360MM (+15% Y/Y) / $528MM (+15% Y/Y; 3. Lowering C2009E but still showing acceleration – For 39% margin) / $0.13 previously. Our estimates include C2009E, we now estimate revenue / EBITDA / EPS of ~$24MM cash charge owing to the anticipated workforce $6,438MM (+13% Y/Y) / $2,163MM (+15% Y/Y; 34% realignment, ~$500MM gain in equity earnings from margin) / $0.42 (from $6,750MM (+15% Y/Y) / $2,544MM recognition of Yahoo!’s proportionate share of Alibaba’s (+13% Y/Y; 38% margin) / $0.66 previously), reflecting IPO, and the impact from restructuring broadband revenue acceleration of 2ppts + EBITDA margin partnerships (BT / Rogers / AT&T), which we estimate at expansion of ~40bps. Our outlook contemplates ~$400MM spread out across four years (more heavily Marketing Services (ex-TAC) growth to remain flat at weighted in C2008E + C2009E). For C2008E, we lower +15% Y/Y, while Fees revenue rebounds from -9% Y/Y revenue (ex-TAC) / EBITDA / reported EPS to $5,686MM growth in C2008E to flat growth in C2009E. (+11% Y/Y) / $1,886MM (-2% Y/Y; 33% margin) / $0.56 from $5,851 (+14% Y/Y) / $2,244MM (+17% Y/Y) / $0.55. Valuation With Yahoo!, we believe there is long-term valuation upside if2. Continued strength in core business in C2008E – Our the company executes, specifically, based on our 10-year outlook for C2008E reflects continued strength in DCF ($25, using a 12% discount rate and a 6% terminal Yahoo!’s core business: O&O sites (ex-TAC), which we growth rate) and our Discounted Price-to-Earnings valuation expect to grow +21% / +19% / +20% / +19% Y/Y in ($15-23), using a 15% discount rate and a 40-45x P/E). Risks CQ1:08E / CQ2E / CQ3E / CQ4E, or +20% Y/Y in include: recession, implementation / results of strategic C2008E, an acceleration from +19% Y/Y in initiatives, intense competition, and FX. C2007—driven by search / display advertising growth of +29% / +18% Y/Y in C2008E (vs. +21% / +19% Y/Y in In addition to Yahoo!’s strong cash balance, we highlight C2007E). Offset by a weak but improving Affiliate sites $10.0B ($7.10 per share as of Tuesday’s close + assuming a business (positive Y/Y growth in CQ4E), we expect 25% liquidity discount) in sources of incremental balance Marketing Services (ex-TAC) revenue overall to sheet value, consisting of Yahoo!’s interest in Yahoo! Japan, accelerate at +14% / +14% / +15% / +18% Y/Y in CQ1E / Alibaba in China, and GMarket in Korea. CQ2E / CQ3E / CQ4E to +15% in C2008E (vs. +13% in C2007). Yahoo! Recent Highlights:Exhibit 4Yahoo! CQ1:08, C2008E Guidance January 07, 2008 - Yahoo! Launches Yahoo! Go 3.0,(US$ in Millions) Extends Leadership and Sets New Standard for the CQ1:08E C2008E Mobile Internet - Yahoo! announced the launch of the all-newNet Revenue (Ex-TAC) $1,280-1,380 $5,350 -5,950 Yahoo! Go 3.0, Yahoo!s flagship all-in-one mobile offering, inEBITDA 400-450 1,725-1,1975 early beta at the Consumer Electronics Show (CES) 2008,Previous Net Revenue (Ex-TAC) -- -- further solidifying Yahoo!s leadership position in deliveringEBITDA -- -- leading-edge mobile experiences to consumers worldwide.Source: Yahoo! TAC = Traffic Acquisition Costs. e = Morgan Stanley Research estimates Thanks to the feedback from many of our Yahoo! Go 2.0 users, 6 130
  7. 7. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!this new product is designed to deliver more of what time new car listings will be available on Yahoo! Autos to helpconsumers want, wherever however and whenever they want vehicle shoppers go the extra mile in. their searchit. Yahoo! Go 3.0 takes mobile services to the next level withan upgraded and feature-rich user interface, a truly November 20, 2007 – Sony BMG and Yahoo! Expandpersonalized start page and customizable access to Video-on-Demand Pact- Yahoo! announced today that it hasconsumers favorite Internet brands and services through signed an agreement with Sony BMG to extend itseasy-to-use third-party widgets. video-on-demand license. In addition to expanding the existing relationship into additional territories around the world,December 20, 2007 – America Movil and Yahoo! Partner to the new worldwide deal adds a broad array of additional SonyBring Mobile Search and Compelling Mobile Services to BMG music videos to the Yahoo! Music catalog. As part of theMillions of Consumers Across 16 Countries in Latin agreement, Sony BMG music videos will be available forAmerica - America Movil, the leading wireless services distribution across Yahoo! and off-network through aprovider in Latin America, and Yahoo! today announced a Yahoo-branded video player. The deal also enables Yahoo!new strategic global partnership providing a framework for users to utilize various Sony BMG audio recordings in usermaking Yahoo!s industry leading mobile services available to generated audiovisual content.millions of consumers in 16 countries throughout LatinAmerica and the Caribbean. The agreement sets the stage for November 13, 2007 – Yahoo! Extends Global MobileYahoo! oneSearch to be the preferred mobile search service Leadership Through Nine New Partnerships With Mobileon America Movils diverse wireless carriers portals and Operators in Asia Pacific- Yahoo! today announced nineprominent placement of links on the carrier portal to Yahoo!s new partnerships with some of the leading mobile operatorsMobile Web properties. across the Asia Pacific region, in its continuing effort to partner with mobile operators globally to reach hundreds of millions ofDecember 12, 2007 – CNBC and Yahoo! Enter Global consumers. Through Yahoo!s partnerships with mobileDistribution Agreement - CNBC and Yahoo! Finance today operators, Yahoo! oneSearch, Yahoo!s leading mobileannounced an agreement to distribute content from CNBC, search technology, will power the search experience forCNBC Europe, CNBC Asia, and CNBC.com to Yahoo! consumers on partner mobile internet sites and provideFinance users in the United States and worldwide. The additional revenue opportunities for these partners.announcement represents CNBCs first global online alliance,and Yahoo!s first global finance video agreement. Under the November 02, 2007 - Rogers and Yahoo! Expand Strategicterms of the agreement, CNBC will provide video clips from its Relationship – Rogers Communications Inc. and Yahoo!global networks and articles from CNBC.com. The content will today announced new multi-year agreements that build on thebe available to Yahoo! Finance users in the U.S. success of their industry-leading broadband alliance. The new(http://finance.yahoo.com), and will also be available to agreements expand the scope of customer experienceYahoo!s 21 international financial news sites. The video clips beyond the PC and provide Rogers Wireless customers withwill encompass commentary and analysis of the days top the latest and most innovative mobile services. Rogers andbusiness stories, pre-market opening buzz, interviews, Yahoo! will continue to offer Canadian high-speed Internetinvesting and stock-picking segments from CNBC programs access subscribers with an innovative broadband experience,including "Mad Money w/Jim Cramer" and "Fast Money" and a Rogers Yahoo! customized portal and browser, Yahoo!international market news and analysis from CNBC Europe Search, as well as premium services and content from bothand CNBC Asia Yahoo! and Rogers. Under the terms of the expanded mobile agreement, Rogers and Yahoo! will also bring Yahoo!sDecember 11, 2007 – Cars.com Delivers Comprehensive industry leading mobile products - Yahoo! Go for Mobile 2.0Selection of New and Used Car Listings on Yahoo! Autos and Yahoo! oneSearch - to customers across Canada.- Yahoo! and Cars.com today announced the launch of astrategic partnership to deliver comprehensive new and used October 22, 2007 - More Than 200 Educational Institutionsvehicle listings on Yahoo! Autos. With this launch, Yahoo! Select Zimbra in One Year – Zimbra, a Yahoo! company, theAutos users now have easy access to the best selection of leader in open source, next-generation messaging andmore than 2.4 million new, used, certified pre-owned, and collaboration software, today announced that more than 200private-seller vehicle listings from Cars.com dealers and educational institutions have chosen the Zimbra Collaborationprivate-party sellers nationwide. The launch marks the first Suite (ZCS) in the past year. Zimbra now has more than 600,000 mailboxes at academic institutions in more than 15 7 131
  8. 8. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!countries, with many campus-wide deployments exceeding search and opens a drop down menu of suggestions and30,000 mailboxes. related concepts that enables further exploration around their search topic. In addition to the new Search Assist feature,October 16, 2007 – Yahoo! and WebMD Sign Exclusive Yahoo! Search has also introduced multimedia integrationMulti-Year Search and Advertising Distribution including video, audio and photos directly into the searchAgreement– Yahoo! and WebMD today announced exclusive, results, allowing consumers to get their answer -- whether itsmulti-year search and advertising distribution agreements. a Web link, photo, video or music clip -- without leaving theUnder the new agreements, Yahoo! will power sponsored page. As part of the new Yahoo! Search, consumers will alsosearch across the WebMD network of consumer sites, see new Yahoo! Search Shortcuts, with the most usefulincluding WebMD Health, MedicineNet, eMedicine Health and information found on the Web and contributed by other onlineRxList. In addition, WebMD will extend its advertising reach to users. The new shortcuts were designed to help consumersinclude WebMD users across Yahoo! properties and services. save time when searching for popular categories such asWebMD will be the only significant online health publisher to events, music, movies, travel, sports, health, shopping,represent Yahoo!s advertising inventory. businesses and restaurants. The new Yahoo! Search features are available immediately at yahoo.com in the United States,October 16, 2007 - Yahoo! Continues Building Network of and will be made available to United Kingdom in the nearPremium Publishers by Inking Multi-Year Agreements future.with Cars.com, Forbes.com and Ziff-Davis Media– Yahoo!,today announced significant display advertising agreementswith Cars.com, Forbes.com and Ziff-Davis Media. Theseagreements represent the continued build-out of Yahoo!snetwork of premium publishers, which will benefit advertisers,publishers and users. These relationships enable marketersto reach their target audiences with high-value inventory onYahoo! and across the Web, improving reach, frequency andrelevance.October 4, 2007 - Yahoo!, eBay and PayPal Join Forces toProtect Consumers Against E-mail Fraud and PhishingScams – Yahoo!, eBay and PayPal announced acollaborative effort to better protect consumers againstfraudulent e-mails and other dangerous scams known asphishing attacks. Starting today, eBay and PayPal customersworldwide using Yahoo! Mail will have a safer e-mailexperience and will receive fewer fake e-mails claiming to besent by eBay and PayPal. Yahoo! Mail is the first Web mailservice to block these types of malicious messages for eBayand PayPal through the use of DomainKeys e-mailauthentication technology. The technology upgrade will berolled out globally over the next several weeks to all users ofYahoo! Mail.October 01, 2007 - New Yahoo! Search Makes Web SearchEffortless for Consumers - Yahoo! Search has introducedSearch Assist, the most advanced assistance technologyavailable on the Web, and the integration of audio, video andphotos directly into the search results to help make Websearch effortless for consumers. The new Yahoo! Search wasdesigned to better understand user intent and get consumersthe most relevant information, as well as provide the best userexperience. It senses when a consumer needs help with their 8 132
  9. 9. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit Index Exhibit 6 – Yahoo! Quarterly Income Statement Exhibit 7 – Yahoo! Annual Income Statement Exhibit 8 – Yahoo! Quarterly Revenue Breakout Exhibit 9 – Yahoo! Annual Revenue Breakout Exhibit 10 – Yahoo! Key Metrics Exhibit 11 – Yahoo! Quarterly Balance Sheet Exhibit 12 – Yahoo! Cash Flow Statement Exhibit 13 – Yahoo! Discounted Price-to-Earnings Valuation Exhibit 14 – Yahoo! Discounted Cash Flow (DCF) Valuation 9 133
  10. 10. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit 6Yahoo! Quarterly Income Statement(US$ in Thousands, Except per Share Data) F2006A F2007A F2008E 3/06 6/06 9/06 12/06 3/07 6/07 9/07 12/07 3/08 6/08 9/08 12/08Net Revenue (Ex-TAC) (1) 1,087,698 1,122,655 1,121,467 1,227,935 1,183,076 1,243,766 1,282,601 1,403,129 1,327,787 1,375,789 1,411,853 1,570,429 Marketing Services (2) 901,497 933,046 911,519 1,015,221 979,845 1,031,878 1,058,696 1,161,118 1,114,818 1,177,727 1,217,752 1,372,447 Fees (2) 186,201 189,609 209,948 212,714 203,231 211,888 223,905 242,011 212,970 198,062 194,101 197,983 Company Revenue Guidance ($MM) $1,040-1,100 $1,080-1,160 $1,115-1,225 $1,145-1,265 $1,120-1,230 $1,200-1,300 $1,170-1,310 $1,310-1,450 $1,280-1,380Cost of Revenue 176,901 190,986 220,576 214,715 222,856 226,501 252,740 269,331 262,065 262,926 290,916 315,578Gross Profit (incl. Depreciation) 910,797 931,669 900,891 1,013,220 960,220 1,017,265 1,029,861 1,133,798 1,065,722 1,112,863 1,120,937 1,254,851 Company Gross Profit Guidance ($MM) $843-943 $895-965 $925-1,015 $957-1,037 $900-980 $975-1,045 $945-1,055 $1,055-1,165 $1,030-1,100Product Development 179,860 172,573 163,819 172,088 191,200 216,635 223,079 235,117 244,313 264,151 273,899 303,093Sales & Marketing 292,293 287,356 288,555 298,971 317,151 338,320 340,583 367,831 387,714 371,463 395,319 424,016General & Administrative 97,933 108,427 101,912 112,108 115,734 123,397 140,482 156,698 151,368 151,337 155,304 172,747Stock Compensation Expense 108,641 99,723 111,491 95,075 140,006 128,779 145,540 158,102 150,007 110,657 130,094 155,127Amortization of Intangibles 30,858 34,003 32,774 27,151 27,102 25,177 29,985 24,813 25,813 26,813 27,813 28,813Total Operating Expenses (incl. Stock Comp 709,585 702,082 698,551 705,393 791,193 832,308 879,669 942,561 959,214 924,421 982,429 1,083,796Total Operating Expenses (excl. Stock Comp 600,944 602,359 587,060 610,318 651,187 703,529 734,129 784,459 809,208 813,764 852,335 928,669Operating Income (incl. Stock Comp.) 201,212 229,587 202,340 307,827 169,027 184,957 150,192 191,237 106,508 188,442 138,508 171,055Operating Income (excl. Stock Comp.) 309,853 329,310 313,831 402,902 309,033 313,736 295,732 349,339 256,515 299,099 268,602 326,182EBITDA (excl. Stock Compensation) 434,932 456,858 473,738 540,389 460,035 473,629 466,309 527,062 435,238 481,322 454,325 515,405 Company EBITDA Guidance ($MM) $410-440 $415-455 $445-505 $475-545 $420-480 $440-500 $380-450 $480-550 $400-450Net Interest (Income) and Other (Income) (61,873) (57,724) (66,142) (69,093) (64,600) (62,842) (80,294) (96,964) (66,122) (74,522) (79,131) (82,689)Pre-Tax Profit (incl. Stock Comp.) 263,085 287,311 268,482 376,920 233,627 247,799 230,486 288,201 172,629 262,964 217,639 253,745Provision / (Benefit) for Income Taxes 102,932 122,698 119,361 136,699 92,358 87,732 78,653 115,818 77,683 118,334 97,938 114,185Adjustment for Extraordinary Items 0 0 0 0 0 0 0 6,842 0 0 0 0Minority Interest 294 283 (103) 238 (1,155) (500) 547 3,958 1,000 1,000 1,000 1,000Operating Net Income (incl. Stock Comp.) 159,859 164,330 149,224 239,983 142,424 160,567 151,286 161,583 93,946 143,630 118,701 138,559Amortization of Goodwill 0 0 0 0 0 0 0 0 0 0 0 0Acquisition-Related Charges 0 0 0 0 0 0 0 0 0 0 0 0Cumulative Effect of Accounting Change 0 0 0 0 0 0 0 0 0 0 0 0Restructuring Charges 0 0 0 0 0 0 0 0 15,600 0 0 0Extraordinary (Gain) / Loss 0 0 (9,305) 0 0 0 0 (6,842) (325,000) 0 0 0Goodwill Amortization of Yahoo! Japan 0 0 0 0 0 0 0 0 0 0 0 0Amortization of Purchased Technology 0 0 0 0 0 0 0 0 0 0 0 0One-Time (Revenue) 0 0 0 0 0 0 0 0 0 0 0 0Tax Effect 0 0 0 (28,690) 0 0 0 (37,298) 0 0 0 0Reported Net Income 159,859 164,330 158,529 268,673 142,424 160,567 151,286 205,723 403,346 143,630 118,701 138,559SFAS 123 Net Income -- -- -- -- -- -- -- -- -- -- -- --Wtd. Avg. Shares Out (Diluted) 1,493,307 1,476,642 1,442,429 1,419,143 1,418,225 1,403,819 1,395,056 1,394,656 1,418,606 1,421,922 1,425,325 1,429,002Operating EPS (ex. Stock Comp.) $0.15 $0.16 $0.17 $0.21 $0.17 $0.17 $0.17 $0.20 $0.12 $0.14 $0.13 $0.16Reported EPS $0.11 $0.11 $0.11 $0.19 $0.10 $0.11 $0.11 $0.15 $0.28 $0.10 $0.08 $0.10Key MetricsGrowth RateRevenue (Ex-TAC) (Y/Y) 33% 28% 20% 15% 9% 11% 14% 14% 12% 11% 10% 12% Marketing Services (Ex-TAC) (Y/Y) 34 30 20 15 9 11 16 14 14 14 15 18 Fees (Y/Y) 25 19 23 15 9 12 7 14 5 (7) (13) (18)Revenue (Ex-TAC) (Q/Q) 2 3 (0) 9 (4) 5 3 9 (5) 4 3 11Cost of Revenue (Y/Y) 76 77 80 54 26 19 15 25 18 16 15 17Cost of Revenue (Q/Q) 27 8 15 (3) 4 2 12 7 (3) 0 11 8Expenses (Y/Y) 50 39 29 18 12 19 26 34 21 11 12 15Expenses (Q/Q) 18 (1) (1) 1 12 5 6 7 2 (4) 6 10Operating Income incl. Stock Compensation (Y/Y (19) (12) (25) (6) (16) (19) (26) (38) (37) 2 (8) (11)Operating Income incl. Stock Compensation (Q/Q (39) 14 (12) 52 (45) 9 (19) 27 (44) 77 (26) 23Operating Income excl. Stock Compensation (Y/ 21 21 11 16 (0) (5) (6) (13) (17) (5) (9) (7)Operating Income excl. Stock Compensation (Q/ (11) 6 (5) 28 (23) 2 (6) 18 (27) 17 (10) 21EBITDA (Y/Y) 26 24 23 18 6 4 (2) (2) (5) 2 (3) (2)EBITDA (Q/Q) (5) 5 4 14 (15) 3 (2) 13 (17) 11 (6) 13Net Income (Y/Y) (16) (19) (31) (3) (11) (2) 1 (33) (34) (11) (22) (14)Net Income (Q/Q) (35) 3 (9) 61 (41) 13 (6) 7 (42) 53 (17) 17Margin AnalysisGross Margin 84% 83% 80% 83% 81% 82% 80% 81% 80% 81% 79% 80%Operating Margin (incl. Stock Comp.) 18 20 18 25 14 15 12 14 8 14 10 11Operating Margin (excl. Stock Comp.) 28 29 28 33 26 25 23 25 19 22 19 21EBITDA Margin 40 41 42 44 39 38 36 38 33 35 32 33Pre-Tax Margin 24 26 24 31 20 20 18 21 13 19 15 16Operating Net Margin 15 15 13 20 12 13 12 12 7 10 8 9Expense Analysis (as % of Revenue)Product Development 17% 15% 15% 14% 16% 17% 17% 17% 18% 19% 19% 19%Sales & Marketing 27 26 26 24 27 27 27 26 29 27 28 27General & Administrative 9 10 9 9 10 10 11 11 11 11 11 11Effective Tax Rate 39 43 44 36 40 35 34 43 45 45 45 45Revenue Mix (as % of Revenue)Marketing Services (Ex-TAC) 83% 83% 81% 83% 83% 83% 83% 83% 84% 86% 86% 87%Fees 17 17 19 17 17 17 17 17 16 14 14 13Source: Morgan Stanley Internet Research. e = Morgan Stanley Research estimates 10 134
  11. 11. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit 7Yahoo! Annual Income Statement(US$ in Thousands, Except per Share Data) F2005A F2006A (3) F2007A F2008E F2009E Net Revenue (Ex-TAC) (1) 3,695,932 4,559,754 5,112,572 5,685,858 6,437,681 Marketing Services (2) 3,032,235 3,761,283 4,231,537 4,882,744 5,636,011 Fees (2) 663,697 798,471 881,035 803,115 801,671 Company Revenue Guidance ($MM) $3,660-3,710 $4,477-4,597 $5,020-5,160 $5,350-5,950 Cost of Revenue 470,582 803,178 971,428 1,131,485 1,280,885 Gross Profit (incl. Depreciation) 3,225,350 3,756,576 4,141,144 4,554,373 5,156,797 Company Gross Profit Guidance ($MM) $3,697-3,777 $4,056-4,166 $4,320-4,800 Product Development 547,137 688,340 866,031 1,085,457 1,228,908 Sales & Marketing 1,025,249 1,167,175 1,363,885 1,578,512 1,722,996 General & Administrative 319,690 420,380 536,311 630,756 708,145 Stock Compensation Expense 52,471 414,930 572,427 545,885 573,179 Amortization of Intangibles 173,077 124,786 107,077 109,252 125,252 Total Operating Expenses (incl. Stock Comp.) 2,117,624 2,815,611 3,445,731 3,949,861 4,358,481 Total Operating Expenses (excl. Stock Comp.) 2,065,153 2,400,681 2,873,304 3,403,976 3,785,302 Operating Income (incl. Stock Comp.) 1,107,726 940,965 695,413 604,512 798,316 Operating Income (excl. Stock Comp.) 1,160,197 1,355,895 1,267,840 1,150,397 1,371,495 EBITDA (excl. Stock Compensation) 1,557,339 1,895,916 1,927,035 1,886,289 2,163,387 Company EBITDA Guidance ($MM) $1,550-1,580 $1,841-1,911 $1,880-1,950 $1,725-1,975 Net Interest (Income) and Other (Income) (252,523) (254,832) (304,700) (302,465) (298,821) Pre-Tax Profit (incl. Stock Comp.) 1,360,249 1,195,797 1,000,113 906,977 1,097,137 Provision / (Benefit) for Income Taxes 498,115 481,690 374,561 408,140 493,711 Adjustment for Extraordinary Items 0 0 6,842 0 0 Minority Interest 7,780 712 2,850 4,000 4,000 Operating Net Income (incl. Stock Comp.) 854,354 713,395 615,860 494,838 599,425 Amortization of Goodwill 0 0 0 0 0 Acquisition-Related Charges 0 0 0 0 0 Cumulative Effect of Accounting Change 0 0 0 0 0 Restructuring Charges 0 0 0 15,600 0 Extraordinary (Gain) / Loss (1,311,578) (9,305) (6,842) (325,000) 0 Goodwill Amortization of Yahoo! Japan 0 0 0 0 0 Amortization of Purchased Technology 0 0 0 0 0 One-Time (Revenue) 0 0 0 0 0 Tax Effect 269,701 (28,690) (37,298) 0 0 Reported Net Income 1,896,231 751,390 660,000 804,238 599,425 SFAS 123 Net Income -- -- -- -- --Wtd. Avg. Shares Out (Diluted) 1,485,591 1,457,686 1,404,353 1,423,714 1,437,841Operating EPS (ex. Stock Comp.) 0.60 0.66 0.69 0.56 0.64Reported EPS 1.28 0.52 0.47 0.56 0.42Key MetricsGrowth RateRevenue (Ex-TAC) (Y/Y) 44% 23% 12% 11% 13% Marketing Services (Ex-TAC) (Y/Y) 43 24 13 15 15 Fees (Y/Y) 48 20 10 (9) (0)Revenue (Ex-TAC) (Q/Q) -- -- -- -- --Cost of Revenue (Y/Y) 45 71 21 16 13Cost of Revenue (Q/Q) -- -- -- -- --Expenses (Y/Y) 33 33 22 15 10Expenses (Q/Q) -- -- -- -- --Operating Income incl. Stock Compensation (Y/Y) 68 (15) (26) (13) 32Operating Income incl. Stock Compensation (Q/Q) -- -- -- -- --Operating Income excl. Stock Compensation (Y/Y) 68 17 (6) (9) 19Operating Income excl. Stock Compensation (Q/Q) -- -- -- -- --EBITDA (Y/Y) 55 22 2 (2) 15EBITDA (Q/Q) -- -- -- -- --Net Income (Y/Y) 71 (16) (14) (20) 21Net Income (Q/Q) -- -- -- -- --Margin AnalysisGross Margin 87% 82% 81% 80% 80%Operating Margin (incl. Stock Comp.) 30 21 14 11 12Operating Margin (excl. Stock Comp.) 31 30 25 20 21EBITDA Margin 42 42 38 33 34Pre-Tax Margin 37 26 20 16 17Operating Net Margin 23 16 12 9 9Expense Analysis (as % of Revenue)Product Development 15% 15% 17% 19% 19%Sales & Marketing 28 26 27 28 27General & Administrative 9 9 10 11 11Effective Tax Rate 37 40 38 45 45Revenue Mix (as % of Revenue)Marketing Services (Ex-TAC) 82% 82% 83% 86% 88%Fees 18 18 17 14 12Source: Morgan Stanley Internet Research. e = Morgan Stanley Research estimates 11 135
  12. 12. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit 8Yahoo! Quarterly Revenue Breakout(US$ in Thousands, Except per Share Data) $901,497 $933,046 $911,519 $1,015,221 $979,845 $1,031,878 $1,028,708 -100% -100% -100% F2006A (1) F2007A (1) F2008E (1) 3/06 6/06 9/06 12/06 3/07 6/07 9/07 12/07 3/08 6/08 9/08 12/08Total Net Revenue (Ex-TAC) $1,087,698 $1,122,655 $1,121,467 $1,227,935 $1,183,076 $1,243,766 $1,282,601 $1,403,129 $1,327,787 $1,375,789 $1,411,853 $1,570,429 Y/Y Growth 33% 28% 20% 15% 9% 11% 14% 14% 12% 11% 10% 12% Q/Q Growth 2 3 (0) 9 (4) 5 3 9 (5) 4 3 11Marketing Services (Ex-TAC) $901,497 $933,046 $911,519 $1,015,221 $979,845 $1,031,878 $1,058,696 $1,161,118 1,114,818 $1,177,727 $1,217,752 $1,372,447 Y/Y Growth 34% 30% 20% 15% 9% 11% 16% 14% 14% 14% 15% 18% Q/Q Growth 2 3 (2) 11 (3) 5 3 10 (4) 6 3 13 % of Total Net Revenue 83 83 81 83 83 83 83 83 84 86 86 87 Owned & Operated Sites $710,097 $746,046 $733,419 $843,394 $809,045 $879,800 896,803 1,020,805 975,908 1,049,930 1,077,175 1,215,001 Y/Y Growth -- -- -- -- 14% 18% 22% 21% 21% 19% 20% 19% Q/Q Growth -- 5 (2) 15 (4) 9 2 14 (4) 8 3 13 % of Total Net Revenue 65 66 65 69 68 71 70 73 73 76 76 77 Traditional Branded Advertising (Display) $380,755 $430,563 $416,592 $501,680 $465,922 $487,667 $498,395 $599,569 $552,803 $574,915 $586,413 $697,832 Y/Y Growth 45% 45% 31% 28% 22% 13% 20% 20% 19% 18% 18% 16% Q/Q Growth (3) 13 (3) 20 (7) 5 2 20 (8) 4 2 19 % of Total Net Revenue 35 38 37 41 39 39 39 43 42 42 42 44 Sponsored Search $252,483 $237,954 $235,812 $250,904 $248,969 $296,273 $306,939 $328,424 $328,424 $380,972 $396,211 $416,022 Y/Y Growth 31% 22% 14% 6% (1%) 25% 30% 31% 32% 29% 29% 27% Q/Q Growth 7 (6) (1) 6 (1) 19 4 7 0 16 4 5 % of Total Net Revenue 23 21 21 20 21 24 24 23 25 28 28 26 Other (7) $76,859 $77,529 $81,015 $90,810 $94,154 $95,861 $91,469 $92,811 $94,680 $94,042 $94,551 $101,147 Y/Y Growth 49% 45% 51% 62% 23% 24% 13% 2% 1% (2%) 3% 9% Q/Q Growth (2) (2) 0 7 (3) (9) 2 1 (3) (9) 2 4 % of Total Net Revenue 7 7 7 7 8 8 7 7 7 7 7 6 Affiliate Sites Net Revenue $191,400 $187,000 $178,100 $171,827 $170,800 $152,078 $161,893 $140,313 $138,910 $127,797 $140,577 $157,446 Y/Y Growth 9% 3% (7%) (20%) (11%) (19%) (9%) (18%) (19%) (16%) (13%) 12% Q/Q Growth (10) (2) (5) (4) (1) (11) 6 131 (1) (8) 10 12 % of Total Net Revenue 18 17 16 14 14 12 13 10 10 9 10 10Fees $186,201 $189,609 $209,948 $212,714 $203,231 $211,888 $223,905 $242,011 $212,970 $198,062 $194,101 $197,983 Y/Y Growth 25% 19% 23% 15% 9% 12% 7% 14% 5% (7%) (13%) (18%) Q/Q Growth 0 2 11 1 (4) 4 6 8 (12) (7) (2) 2 % of Total Net Revenue 17 17 19 17 17 17 17 17 16 14 14 13Total Subscribers (2,3) 13,300 14,600 15,500 16,125 16,500 16,900 18,700 19,000 19,285 19,478 20,257 21,270 Y/Y Growth 49% 45% 36% 28% 24% 16% 21% 18% 17% 15% 8% 12% Q/Q Growth 6 10 6 4 2 2 11 3 2 1 4 5Footnotes(1) Revenue breakouts other than Marketing Services, Fees, and Listings are Morgan Stanley estimates.(2) Fee paying customers are primarily DSL Access, Personals, Premium Mail, and Small Business Services subscribers.(3) Includes 200 additional users for MusicMatch in CQ4:04.(4) Net subscribers include the impact of churn.(5) Includes Yahoo! Platinum, Yahoo! Finance, Launch, Yahoo! Mobile and other fee-based services.(6) HotJobs revenue contribution to Yahoo! begins mid-FQ1:02.(7) Other includes Yahoo! Express and Classified (Auctions, Yellow Pages and Autos).Fiscal year ends in December. E = Morgan Stanley Research Estimates.Source: Company data, Morgan Stanley Internet Research. 12 136
  13. 13. MORGAN STANLEY RESEARCH January 30, 2008 Yahoo!Exhibit 9Yahoo! Annual Revenue Breakout – First Pass(US$ in Thousands, Except per Share Data) F2006A (1) F2007A (1) F2008E (1) F2009E (1)Total Net Revenue (Ex-TAC) $4,559,754 $5,112,572 $5,685,858 $6,437,681 Y/Y Growth 22% 12% 11% 13% Q/Q Growth -- -- -- --Marketing Services (Ex-TAC) $3,761,283 $4,231,537 $4,882,744 $5,636,011 Y/Y Growth 22% 13% 15% 15% Q/Q Growth -- -- -- -- % of Total Net Revenue 82 83 86 88 Owned & Operated Sites $3,032,956 $3,606,453 $4,318,014 $4,998,315 Y/Y Growth 31% 19% 20% 16% Q/Q Growth -- -- -- -- % of Total Net Revenue 67 71 76 78 Traditional Branded Advertising (Display) $1,729,590 $2,051,553 $2,411,964 $2,723,042 Y/Y Growth 36% 19% 18% 13% Q/Q Growth -- -- -- -- % of Total Net Revenue 38 40 42 42 Sponsored Search $977,154 $1,180,605 $1,521,630 $1,863,155 Y/Y Growth 18% 21% 29% 22% Q/Q Growth -- -- -- -- % of Total Net Revenue 21 23 27 29 Other (7) $326,212 $374,295 $384,420 $412,118 Y/Y Growth 22% 15% 3% 7% Q/Q Growth -- -- -- -- % of Total Net Revenue 7 7 7 6 Affiliate Sites Net Revenue $728,327 $625,084 $564,730 $637,696 Y/Y Growth (4%) (14%) (10%) 13% Q/Q Growth -- -- -- -- % of Total Net Revenue 16 12 10 10Fees $798,472 $881,035 $803,115 $801,671 Y/Y Growth 20% 10% (9%) (0%) Q/Q Growth -- -- -- -- % of Total Net Revenue 18 17 14 12Total Subscribers (2,3) 16,125 18,750 19,650 19,971 Y/Y Growth 28% 16% 5% 2% Q/Q Growth -- -- -- --Footnotes(1) Revenue breakouts other than Marketing Services, Fees, and Listings are Morgan Stanley estimates.(2) Fee paying customers are primarily DSL Access, Personals, Premium Mail, and Small Business Services subscribers.(3) Includes 200 additional users for MusicMatch in CQ4:04.(4) Net subscribers include the impact of churn.(5) Includes Yahoo! Platinum, Yahoo! Finance, Launch, Yahoo! Mobile and other fee-based services.(6) HotJobs revenue contribution to Yahoo! begins mid-FQ1:02.(7) Other includes Yahoo! Express and Classified (Auctions, Yellow Pages and Autos).Fiscal year ends in December. E = Morgan Stanley Research Estimates.Source: Company data, Morgan Stanley Internet Research. 13 137

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